2019: A Successful Year for Your Food Business
As 2018 comes to an end, food entrepreneurs get a chance to sit down and look over their financial performance for the year. The food business is fickle; some operators seem to have it so easy and others seem to always be struggling. If you’d like to do better in the new year, here are 3 ways you can make your business more efficient and ultimately enable you to take home more money.
What’s Your Gross Margin?
Your gross margin is the most important ratio to know about your company. It’s the percent of sales left over after you account for what your product cost you. If you sell $10 six packs of soda and your product costs you $4, your gross margin is 60%. On your company’s profit and loss statement, find your gross profit and divide it by your total revenue to get your gross margin. Here are a few things to think about once you know your margin:
- Do I operate a high gross margin or low gross margin business?
High margin businesses (those with gross margins over 50%) benefit the most from a sales push, or working on your pricing and food costing. Low margin businesses (those with gross margins under 50%) benefit the most from finding ways to make the business more efficient by lowering overhead costs like kitchen utilities and employee overtime.
- How does my gross margin compare to other companies in my sector?
Once you have your gross margin you can use it to make an apples-to-apples comparison to your competitors’, or industry’s gross margin. Is it above average? If so, make sure you keep giving your customers a meaningful reason to pay more for what you’re offering. Is it below average? Then maybe you need to consider changing your pricing and quantity structure.
Track Your Refunds and Discounts.
No other businesses face as many refunds and discounts as food businesses do. Whether it a restaurant comp’ing a meal after a service error or free samples being given away to promote a new food product at a grocery store, discounts and refunds can seriously affect your business’ ability to make a suitable profit. At the same time, they’re a fact of life for this industry. The solution is to benchmark, track, and set goals for your refunds and discount. Many bookkeepers just lump discounts and refunds into your sales figure. Encourage them to separate these costs out into discrete figures that offset your total revenue.
Work With an Expert to Optimize Your Labor.
Foodservice labor is complicated, and the rules are changing all the time. It’s never OK to cut your staff and overburden your team just to save a dime, but there are many ways in which your scheduling, overtime, and calculation of base wages net of credit card fees can add small costs to your payroll every week that translate into big expenses each year. A good payroll processing technology that’s specialized for the foodservice industry is good, but in this case we recommend that you talk to an expert: preferably someone who runs human resources for other food companies. Here are a few labor costs to think about:
- Do your customers tip your employees via credit card? If so, make sure you are deducting credit card fees from the amount of tips you pay out to your employees.
- What is the tradeoff between adding a shift and working your current staff overtime? Comparing these two scenarios might make a big difference in your total annual payroll costs.
ABOUT BUSINESS BITES
The BUSINESS BITES, brought to you by the Food Business Fundamentals program at ICC, is a series of workshops, discussion panels, networking events and resources designed to support entrepreneurs in the food industry.